Five Important Steps to Planning a Secure Retirement

 

Troy Sharpe: My grandparents sold their home in business for a couple million dollars. They were very simple. People didn’t have a ton of savings before this, but within five weeks of retirement, my grandfather had two aortic aneurysms. The next few years went to healthcare costs, long-term care costs. A downturn in economic conditions caused some of the high-interest-rate paying vehicles that they were relying on to drop the interest rates, so their income was more than cut in half.

This experience led me to become a retirement planner, someone focused on financial advising, but with the specialty in the retirement arena. I’ve sat with thousands and thousands of families over the course of my career and that experience combined with what happened to my grandparents, led to the creation of what we call the Retirement Success Plan here at Oak Harvest Financial Group.

The Retirement Success Plan

The Retirement Success Plan or RSP as we call it, is a structured process that results in a final retirement plan that’s customized to your particular retirement needs and concerns. It covers five key areas, which we’re going to get into in today’s video, of what’s important to be successful in our opinion when it comes to retirement planning. It’s built by a team of advisors that you have at your disposal and works in conjunction with the investment strategy by our in-house investment team here at Oak Harvest Financial Group.

What this means for you is that you have checked off the important boxes that we’ve learned over our years of experience are most critical to retirement success and it’s also a timeline for execution and a way to monitor progress so we can make adjustments in real time to make sure you are staying on track for your retirement. One of the big concepts to understand about retirement planning is that every single decision you make is interconnected when you take social security, how much you spend in retirement, from which accounts you withdraw from, all of these impact your account balances, all of these impact how long your money will last and how much income you’ll have to spend.

These are the big questions that we have in retirement. Do I have enough? How long will my money last? If something happens to me, will my family be okay? How do I pay less tax? All of these things are interconnected, so a lot of times we see people come in for the first time and they’re one year, two year, three years into retirement, and things are going so well and they feel they’re okay and a lot of the times that is true, but what’s happening is they’re setting down a particular path.

Every decision that you make sets you on a certain trajectory. Oftentimes in the first couple years of retirement, we don’t have enough visibility into how the decisions we’re making today are impacting the trajectory of our expected account balances. Things oftentimes can feel like they’re going well, but we don’t have that visibility to quite see, hey, am I on the right path or could I be making better decisions that puts me onto a better trajectory? Let me show you what I mean.

We see here this is a plan as it currently stands, is it 81% probability of success? Now, 81% isn’t a bad number. Can it be improved? Most likely, but we see in the beginning years here, 2023 through 2025, all of these trajectories and we see the dispersion here, they’re all very closely concentrated together. The first two, three, four, five years of retirement, we do not know which one that we’re on and that can lead us into a sense of complacency or a false sense of security that says, “Hey, you know what? I’m doing good. I’m doing great. I’m on the right path because I’m three years into retirement and I still have about the same money that I started with.”

As you can see, some of these paths ultimately diverge into the red, which is not good. That means you’re running out of money or you’ve run out of money, and others diverge into a much more comfortable and secure range. Here we see 2.5 million, 1.9 million, 4.7 million. These are all different possible paths that the decisions you’re making today and over the next several years could potentially put you on. The purpose of the Retirement Success Plan is to, one, identify who you are, what’s important to you and how do we determine what success means for you?

Then we have a structured process that’s based on your investment allocation, generating income, reducing taxes, looking out for healthcare, and then estate planning. The retirement success plan isn’t just an initial plan that set it in, forget it. It’s a timeline for execution of the key components and also a process to continue to monitor and make adjustments on the fly when necessary. As long as we have visibility into how the decisions we’re making today are impacting our future security, what we find is you tend to live a more comfortable retirement and that means comfort around the level of income that you’re receiving and how much you’re spending.

Not to mention what we’re doing from a tax perspective, to make sure you don’t carry a ton of risk and potentially pay too much tax down the road. There are five key areas we feel are important to have a plan for leading into retirement, at retirement and then post-retirement that we continue to monitor and adjust as needed. Monitoring is an extremely critical part of the retirement success plan because again, we don’t really know where we’re at on this trajectory in years, one, two, three, four or five.

It’s about a relationship. A partnership moving forward that allows us to have visibility into how the decisions we’re making are impacting our trajectory and also allow us to change in real time when circumstances require. Now, external events like the stock market crashing or the economy going into the tank or internal decisions such as how much we’re spending or if we want to buy that vacation home or maybe we want a gift to the kids or grandkids.

These are all decisions that impact the trajectory that we’re on. Having that relationship and having that visibility is what allows us to be at peace and know, hey, we can do this or we can’t do this or these are the parameters that we should operate in to make sure that we continue on the path that we feel comfortable with.

Step 1: Allocation

Step 1 of the RSP is what we call the allocation. This is a very critical step because after we’ve learned who you are, how you define retirement success, and what your goals are, we make a recommendation of how you should spread your money across different asset classes, so think stocks and other low-risk securities.

One way to think about the allocation and why it’s so important is if you think about ingredients in a recipe. If you have too much sugar or maybe too much salt, you’re not going to have something that’s tasty that you, nor anyone else really wants to eat. With the allocation in your retirement, we’re not talking about a bad pot roast that you can just redo. You have plenty of time. Maybe next weekend, we’re talking about your retirement, and with the wrong ingredients or the wrong allocation, you could possibly run out of money.

Maybe you have to go back to work, maybe you don’t have enough money to help pay for healthcare expenses for you or your spouse, maybe there’s not enough to take care of your surviving spouse. This is a very critical step in the process and that’s why it’s Step 1. The framework that we use to build your allocation is what we call the Core 4. We have the piece of mind pillar, we have multiple streams of income, we have the growth pillar and then we have the defense or alternative pillar.

Some of our clients have money spread across all of the Core 4 and for other clients, it makes sense to just have two or maybe three pieces of the Core 4, but that’s the framework that we use based on your goals and your circumstances to build out the allocation for your retirement.

Step 2: Income Planning

Step 2 of the RSP is the income planning process. We want to see multiple streams of income in retirement. We’d like to live off interest as much as possible, not get into that principle, but we also want to know where our income is coming from. Is it coming from the retirement accounts? Is it coming from the non-retirement accounts?

Because in retirement, where you withdraw your income from determines how much tax you pay. Also, instead of having a static 4% rule, we want to have a more dynamic plan, a plan that adjusts our income either up or down based on the trajectory of our plan.

Step 3: Tax Planning

Step 3 of the RSP is tax planning. Tax planning is an extremely critical part of this overall process, but the reason it’s Step 3 is because if we don’t know what the allocation is or how much income we’re getting and when we’re getting that income, we can’t possibly do a tax analysis.

Instead of telling you to go see your CPA to develop a tax strategy, we build that in-house as part of your customized RSP here at Oak Harvest Financial Group. Now, the reason we do that is because we believe to truly be a fiduciary and provide recommendations and advice in your best interest, you must look at taxes and the impact taxes have on the amount of income you actually get to keep. A tax plan is an extremely critical part of the retirement success plan.

Step 4: Healthcare Planning

Step 4 of the process is healthcare planning.

This is one area where my grandparents and their advisors failed to get the job done and this costs them well over a half a million dollars within the first few years of retirement. I don’t want that to happen to you, so we’ve built that in to the RSP. If you retire prior to 65, we have to figure out health insurance. Many of you have concerns about end-of-life care or later-in-life care. Is long-term care an appropriate solution for you? How do we not have premiums that continue to go up throughout retirement? Addressing the potential costs of healthcare in retirement is a critical step because one mistake here can cause everything else to blow up. Step 5 of the RSP is the estate planning side.

Now, a big mistake that we see clients make all the time is they go to their attorney, they get the estate documents and then they never tell us. What we’ve done is we’ve built this estate planning into the financial process. First and foremost, your financial planner should be the quarterback of this overall estate planning process. This way, assets that need to get retitled to either go into trust or other entities, we make sure that gets done. Beneficiaries that need to be changed. We make sure that gets done, but also having a conversation with you about the disposition of your estate.

We don’t want your money going to your children and then half of that going to your children’s future ex-spouse. There’s a lot of aspects beyond having a will, maybe a living trust and your medical directives that we need to address and we build that into the RSP.

Conclusion

Those are the five steps of our retirement success plan that we customize for you. Not only are these actionable items that we feel can improve your overall retirement, providing better peace of mind, more visibility into the future, more transparency, and clarity around some of the items that are important in retirement.

It’s also a timeline for execution of these specific items. It’s also a structure in a framework that allows us to continue to monitor your retirement, to make sure that your plan is on the correct trajectory and that you have a successful retirement. We’re always producing more content to help you go more in depth with retirement success plan and the overall process. To continue that journey, you’ll want to click right here to learn more about what the RSP means for you and your family.

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